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Michael Lyons: central/local relationship still 'nowhere near right'

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The failure of successive governments to reform council tax and the disproportionate impact of local government funding cuts on poor areas contributed to the country’s vote for Brexit, Sir Michael Lyons has told LGC.

In an interview 10 years after the publication of the Lyons Inquiry’s landmark report into the role, function and funding of local government, Sir Michael said its main legacy was establishing the idea of councils as “stewards of place” with an important role to play in shaping the local economy.

However, he said little progress had been made over the past decade towards aligning and clarifying the roles and responsibilities of Whitehall and councils to create a “single system of government”, as envisaged by his inquiry.

The report acknowledged this would take a number of years. However, Sir Michael, a former chief executive of Birmingham City Council, said that 10 years on, the central/local power balance was still “nowhere near the right relationship”.

One of the inquiry’s most controversial recommendations was that the government should introduce regular council tax revaluations and create additional bands for the most and least valuable properties. However, the system remains the same as when it was set up in 1993.

Sir Michael said at the time of publication there had been some “quite extraordinary and unforgivable examples of really prominent people arguing that somehow you should ignore… great gains in wealth” made by individuals as a result of rising property prices, including on the Labour side.

In contrast, “nobody would speak up for the communities that were paying too much council tax because the revaluation didn’t recognise that the relative value of their properties had dropped dramatically,” Sir Michael said. He added: “There are losers and they are the poorest so why would you not be able to see that good principles of fairness would demand some change here?”

He added: “This is all bound up with this anger that those who’ve gained the most in the past 25 years have not contributed anything like as much as they should have done and that needs to change.”

Sir Michael said this anger was a major factor in the Brexit vote, particularly among communities “still suffering from the deindustrialisation of the 1980s”. This was compounded by the fact these areas had also faced the biggest funding cuts since 2010, Sir Michael said.

“If we want to understand Brexit we have to understand the sheer anger of communities… There’s no doubt that the differential impact, the differential fortunes have now paved the way, so folks have said if [Brexit makes things overall] worse, it can’t be any worse for me.

The inquiry was set up in 2004 by then chancellor Gordon Brown. Sir Michael said the report had had “nothing like as big an impact as it might have” done had Mr Brown called a general election soon after succeeding Tony Blair as prime minister in 2007.

“This would have been part of a comprehensive offer on decentralisation and a new relationship between central and local government. It would have been part of the manifesto,” said Sir Michael, who chaired the BBC Trust for four years after his inquiry concluded.

Sir Michael said he had been told the inquiry’s work was used “actively” by the coalition government that succeeded Labour in 2010 and did the first devolution deal with Greater Manchester. However, he said devolution to six new metro-mayors did “not really” fit with the inquiry’s vision of devolution as it was “piecemeal” and started from a position of the centre “being unwilling to relinquish powers”. Sir Michael described the new mayors as only “a bit of a step forward” for localism.

“I still think their success will depend a lot on how they are treated by central government,” he said. “They’ve got a very limited revenue flexibility and indeed they’ve got a very limited number of functions.”

However, on two key areas subsequent governments have moved further or faster than the inquiry envisaged.

While the report called for a rethink of the Audit Commission’s burdensome comprehensive area assessments of councils, one of Sir Eric Pickles’ first acts as communities secretary in 2010 was to announce the wholesale abolition of the commission.

Sir Michael said while the commission had been a “good friend to local government” in its early days by supporting councils to enhance their own performance through comparison with peers, “the step back that government’s taken from believing that it can through simple indicators” tell a good council from a bad one was an “improvement”.

In addition, while the Lyons Inquiry proposed in the longer term business rates be retained by local government, in 2015 then chancellor George Osborne announced the introduction of 100% retention by 2020. Though the 2017 general election has since cast uncertainty over the policy Sir Michael said he had thought it would take much longer to “pave the way for that to be credible”.

He said: “I see that as part of our legacy that this was even deemed possible. We established with the business community a clear interest about them having a dialogue about what happens locally and the importance of the local economy to the local council… that was sort of a milestone moment.”

However, he said the Conservatives’ approach to business rates differed from what the inquiry had envisaged as it failed to place enough emphasis on the need for equalisation between councils.

“They certainly led councils to believe they were going to be in a position where they kept all the business rates, whereas we never argued that.”

Crucially, he also points out that the inquiry had only ever proposed business rates should fund “local services”, where it judged incentives and flexibility were appropriate, not what it deemed “national services”, such as social care and education, where citizens had a right to expect certain standards.

This distinction is key to Sir Michael’s analysis and still very much a live question as the sector embarks on a review of fair funding ahead of the anticipated move to 100% business rates retention. Asked for his advice on how the sector should approach the difficult questions of distribution, Sir Michael said a “better understanding of what is the local job and what is the national job is at the core of this”.

He said: “Everybody at the moment seems to think that fair funding is going to lead to an improvement in their circumstances. That cannot possibly be true so there’s room for some pretty tough talking within local government.”

 

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